SC Energy Crisis: Who is Accountable?

The decision by Santee Cooper and SCANA  (the parent company of SCE&G) to abandon a multi-billion joint project to build two nuclear power facilities means that their customers were not only charged billions of dollars to build plants that won’t be finished, but will also have to pay billions more – for decades to come – of debt on the projects.

There are more questions than answers, and it will take some time to unravel the details of this decade-long debacle. What is undeniable is that not only has the energy monopoly in the state failed to the point of crisis, but the power monopoly in the Statehouse is entirely to blame for the catastrophic cost.

The long-term solution is de-regulation of the energy monopoly. In fact, it’s becoming clear that opening up the energy market and getting politicians out of the utility business is the only way South Carolinians will avoid the high cost of paying off the debt for nuclear plants that will never supply power.

Right now, angry citizens deserve serious and detailed answers about the cost, consequences, and who is accountable for both. Here’s a general overview.

The Legislature and the Base Load Review Act

The legislature passed a law that guaranteed ratepayers would bear the full cost to build the nuclear plant, including a profit for SCANA’s investors.

This law effectively served as a guarantee that ratepayers would repay SCANA’s debt even if the project wasn’t finished.

The South Carolina legislature passed the Base Load Review Act (BLRA) in 2007. This legislation:

• Allowed power companies to raise their rates in advance to pay for construction of nuclear or coal power plants. This forced ratepayers to become the project’s venture capitalists, bearing all the cost and the risk. SCANA raised rates for this project nine times over nine years.
• Guaranteed that even if the project were abandoned, the ratepayers would still absorb the cost of paying back the debt. This made power plant construction a no-lose proposition for the investor-backed SCANA and a safe bet for creditors.
• Allowed utilities to build a profit for their investors into the rate charge. Ratepayers were not only building the plants but paying investors before the plant began generating revenue.
• Allowed utilities to charge their ratepayers for the “preconstruction” costs that would be incurred before the plant was authorized.

Lawmakers also included protections against pushback from regulators. While the BLRA does require the oversight of the Public Service Commission (PSC), the language is vague, undefined and was heavily weighted to favor utilities. For example, if a utility’s proposals and practices were “prudent and reasonable,” and any changes to the plan were just, reasonable or were not imprudent, the PSC is required to approve them.

Furthermore, costs defined as “preconstruction” (evaluation, design, consulting, professional costs, etc.) could be included in the total cost prior to obtaining even preliminary approval.

The PSC was required to authorize this unless it deemed the general decision to incur preconstruction costs to be imprudent – but not the actual preconstruction costs themselves. In other words, the individual financial decisions incurred in advance could not be specifically challenged and excluded. Once approved, those preconstruction costs – and the ongoing costs translated to the project – could not be challenged in any future hearings.

Finally, while SCANA had to petition the PSC to authorize a rate increase, if the PSC failed to rule within four months and ten days the increase was automatically approved.

The BLRA passed the House (104-6) and the Senate (which did not take a roll-call vote) and became law without the governor’s signature.

Oversight by the Legislatively-Controlled Public Service Commission

The Public Service Commission (PSC) was responsible for all decisions to approve SCANA’s project plan, changes, and rate hikes. The PSC is nominated and supervised by yet another board – the Public Utility Review Committee (PURC) – which is appointed by two legislative leaders: the Speaker of the House and the chairman of the Senate Judiciary Committee.

The PSC is a seven-member board created by state law to regulate public utilities. PSC members are full-time with salaries of more than $100,000 per year. The PSC has the statutory authority to approve utilities’ rates, service, and practices and is the oversight agency specified by law for nuclear/coal plant construction under the BLRA.

The PSC had the statutory responsibility to approve SCANA’s nuclear construction plan, including:

• the original project schedule including contingencies,
• capital cost,
• desired rate hike,
• principal contractors, suppliers, etc.

The PSC also had to approve every single modification of the project. In other words, any problems with cost or timeline would/should have been disclosed and approved.

In other words, the PSC is entirely accountable for the approval of both the rate hikes and the details of SCANA’s project– including cost overruns and extended timelines. But the PSC is not accountable to the public. Rather, the commissioners are elected by the entire General Assembly but nominated – and supervised – by a board of legislators.

Who controls the PSC? Meet the PURC

The PURC is a special board chosen by two legislative leaders – and comprised mostly of legislators – that nominates candidates to the PSC. The PURC also supervises the PSC and reviews their performance.

The PSC members are elected by the General Assembly, but they are nominated by the Public Utilities Review Committee (PURC). The PURC consists of six lawmakers and four members of the general public. The Senate Judiciary Chairman appoints five members, the Speaker of the House appoints four members, and the chairman of the House Labor, Commerce and Industry Committee automatically serves. All House committees elect their own chairmen, but committee members are selected by the speaker – giving him indirect influence over committee chairmen.

The PURC screens and nominates up to three candidates for each of the seven PSC seats, and elections are staggered so that the General Assembly holds PSC elections every two years. It is worth nothing that legislators have not been inclined to replace the PSC members – three of the members have served since 2004, one since 2008, one since 2010, one since 2013 and the other since 2014.

Four of the seven members have been on the Public Service Commission since the beginning of the nuclear project.

The PURC is also charged with ongoing oversight of the PSC. State law requires the PURC to:

• conduct an annual performance review of each PSC member, as well as the PSC as a whole, and
• submit the reviews to the General Assembly and each PSC member’s file for reelection consideration.

The Office of Regulatory Staff: the government advocate for the public

The government agency charged with “representing the public” in proceedings governing the utility (e.g., rate hikes) is controlled by the same legislative board that supervises the PSC.

Another agency – the Office of Regulatory Staff (ORS) – was created by state law to be the consumer advocate and represent the public interest before the PSC. The ORS has significant authority to audit and investigate during the BLRA process, at least on paper, and is charged with reviewing the “reasonableness and necessity of all costs to be recovered…” The ORS is specifically instructed by the BLRA to “safeguard the public interest.”

Regardless of stated intent, however, the ORS is hardly an independent watchdog. In fact, while the governor technically appoints the executive director of the ORS, state law specifically instructs the PURC board to nominate no more than one candidate for the governor’s consideration. The PURC also sets the salaries of the ORS director and staff.

The agency that regulates utilities and the agency that advocates for the public are, in effect, both controlled by the same handful of legislators.

Santee Cooper and SCANA

Santee Cooper can’t be held directly accountable by its customers, as it is a state agency controlled by a board. While that board is initially appointed by the governor, the nominees must be reviewed by the PURC before confirmation by the Senate. This adds yet another layer of control over the energy system by the same handful of legislators.

The governor cannot remove board members unless they violate the law. Santee Cooper has the authority to borrow revenue bonds, which are guaranteed by their ratepayers, and currently has outstanding bond debt of more than $7 billion – almost seven times greater than the second-highest agency debt of the State Infrastructure Bank. An estimated $4 billion of that debt was borrowed for the failed nuclear project.

Who can citizens hold accountable going forward?

The General Assembly bears full responsibility to the public for the nuclear plant debacle.

• The General Assembly passed the law guaranteeing ratepayers would cover the project’s cost instead of the utility.
• The General Assembly elects the Public Service Commission (PSC) that regulates utilities and oversees the BLRA plant construction process.
• Legislators serve on the Public Utility Review Committee (PURC) that not only nominates the PSC but oversees its performance, and screens the board of state-owned utility Santee Cooper.

There is only one place for citizens to go for answers – and action – on the nuclear plant debacle that puts them on the hook for billions of dollars, and that is to their own House member and senator. Ultimately lawmakers are accountable both for the legislation that led to the current energy crisis, and for the entire approval and oversight process. Lawmakers who defend their power monopoly cannot escape the blame for its failure.